The Interest Rate Effect

So interest rate went up…by about a half a point. A pretty decent increase. The question has been posed this week…will this have an effect on slowing the market down? I think that’s a good question and based on my own activity this week I think it has. Of course I also think that will last another couple of weeks and then it’ll be full steam ahead.

Why do I think that? Because rents aren’t going down and if you think this will mean prices will fall 24% in the next few months…get over it. They won’t. A few people I spoke to think rates could go up over 5% by the end of the year. If that becomes clear don’t you suspect folks will be more serious about buying before that happens? We’ve had a long period of low rates. I think this increase shocked some people but those same people will rediscover their motivation to  buy in the not too distant future. Simply because all those reasons they had to buy before are still there.

I do think this week will provide a very nice opportunity to get a bargain though…if you can really use the word bargain for this market. I think you may be able to not compete to compete with a lot less people. If I was a buyer I’d be writing soon…because folks got nervous and that nervousness won’t last long.

A Wholesale Disappearance

Last week Wells Fargo shut down its wholesale lending division. These are loans that are originated by mortgage brokers but ultimately serviced by Wells. It’s thought that this decision was made because Wells came out on the wrong end of a discrimination lawsuit brought by the Department of Justice. Wells settled for $125 mil. Turns out many of the loans in question here were originated by mortgage brokers. Wells has had enough.

I think this is an interesting problem and one that will affect folks looking for loans. BofA and Chase previously shut their own wholesale divisions. I’ve had several transactions this year where mortgage brokers have originated loans for buyers through Wells Fargo who seem to have had terrific rates lately. My suspicion is that this will affect folks looking to buy now since brokers will now be focusing on other lending sources…and certainly there’s plenty of those, but it sure feels more comfortable to me at least to have a buyer work with a known entity. I know, I kn0w…that’s just my opinion. It’s just that I can’t tell you how many tortuous transactions I’ve been a part of that have featured unknown (to me at least) lenders.

Of course, there are tons of wonderful mortgage brokers working in this area right now. Very competent ones too. It was nice when they could originate for Wells.

Getting A Loan

 

 

 

 

 

 

A comment from a couple of days ago brought to mind a topic that I hear all the time. The difficulty of getting a loan in this current lending environment. I hear people all the time making the assumption that buyers can’t get loans and thus the real estate market is slow. It’s a patent excuse for some folks as to why things have been slow. “Well, nobody will lend!” is the refrain. I have to say, that’s not been my experience. Particularly in the last couple of years. I don’t really think there’s a problem getting a loan…if you’re qualified that is.

During the boom (bubble…whatever you want to call it) anybody who could fog a mirror could get a loan. Folks got loans who didn’t have jobs! Folks simply lied and stated false income and got loans. Guess what? Those days are over. You have to be qualified to get a loan. Big surprise, right? Here’s the thing, in Foster City the vast majority of buyers who purchased homes here were indeed qualified. That’s why we don’t really see that much foreclosure/short sale activity in Foster City. When I looked at offers at 880 Carina last week 5 of the 6 offers we received had 20% or more down. Even folks using FHA backed loans who have 3% down are qualified too. You can buy a home now…if you’re qualified. I know lots of lenders who are anxious to meet you and help you get a loan.

If you don’t have a job and you owe hundereds of thousands of dollars you probably can’t get a loan. For the rest of you, I’ll bet you can. Even with as little as 3% down.

About Face

Well, there’s been a pretty nice about face when it comes to Conforming loan limits. They were $729,750 as a result of the mortgage meltdown a few years ago but the Federal Government decided that the should be lowered down to $625,000. Surprisingly to me, the Feds decided last week to raise it again to the $729,750 number through 2013. That’s pretty darn good news for folks in this area as it certainly allows more bang for your buck when it comes to purchases and refis.

Here’s the story as reported by Reuters:

Congress Votes To Raise FHA Loan Limits

Loan Mods

Sometime last week I got an e-mail from a client of mine with a question about a loan modification he was attempting. Here’s an excerpt:

“Hi Jim;

Was wondering if you knew of any honest Home loan modification business’s?  You would not believe what some of these firms want me to do to have my Loan modified.  From saying that I’m renting my house for $2000 and I’m living in one room (yes that would be 4 people, in one room) or saying that my wife is a housekeeper so that her income can’t be traced…..  Huh!  Their complete lack of any sort of ethics is troubling to say the least.  Anyway any leads to a firm with a smidgen of integrity would be appreciated. thanks,

Vincent”

Unfortunately, I don’t have any leads for him either. I’m yet to have any client of mine be successful trying a loan mod, nor have I heard of anybody else with a successful loan mod story either. I know folks that have worked diligently for months, after being told to stop making their payment, only to have a notice of default filed on their property. I know folks who have accomplished every criteria placed in front of them…only to be rejected at the end of the journey. I’m not sure anybody really gets these things to work.

In case you missed it, a loan modification is a thing that theoretically happens when a homeowner asks his lender to alter the nature of their loan to allow said homeowner to stay in their home. Again, theoretically, the lender will adjust the interest rate to help the homeowner do just that. The problem is, supposedly only 1 to 2% of the modifications are really actually happening.

Vincent’s e-mail really illustrates the problem well. Some of these loan mod folks are quick to tell you the 1001 ways that you should lie to the lender to maneuver them into complying with your request. Often times fees are paid up front to begin the process as well…and then the odds are so greatly against having it all come together if these statistics are real. From what I’m seeing…I think they are.

I wish I had an answer for all this…my advice would be that if you’re considering this option…be really, really careful.

The Down and Dirty

Just about a year ago there was all this nervousness because lenders were tightening up on their criteria and unless you had 20% down it was going to be very hard to buy a home around here. Of course, it is harder when you have 10% or less down and you have to jump through a bunch more hoops to get a place if you’re using an FHA loan…but it is do-able. The anticipation was that most folks were simply going to have to save more money before taking the plunge and that would slow the market down since it was going to take awhile to get that big old 20% number. Right?

It sure doesn’t seem that way to me so far in 2010. What it seems like is that everybody has a ton of money! On some of my listings this year, 4 of the six offers on Dory had at least 30% down…one had 50% down. Catamaran had two offers that had 30% down. Alameda got an offer with 40% down. Many other transactions I’ve done with buyers have had them competing with other offers that have had large down payments and in many cases all cash offers have won the day.

Yesterday I presented an offer that was one of six. We had 25% down, 2 other offers had 35 and 40% down and one was all cash. Having said that, we’re not talking about small houses. We’re talking about houses selling for $1,000,000. It’s amazing how many folks have $350,000 to $400,000 to put down! In this era when appraisals have been an issue it’s comforting for a seller and thei agent to see offers with such high down payments. It, of course, is also frustrating for a buyer who has 20% down (can you imagine having $200,000 as a liability?) when they have to compete with these other folks. Even with 50% down it becomes a challenge when seemingly so many others have cash and can close in a week on a property…and then offer free rent back!

It’s becoming sort of crazy again in some market segments. Sort of like 2004, only everybody playing is very well qualified and has a ton of money!

Did You Hear The One About FHA Approval?

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Here comes a rant. The title above implies a joke is coming…it is! In September I wrote a post about the difficulty of buying a single family house using an FHA loan. Hilariously, I thought that was difficult! Silly me! Wait until you see what it’s like buying a condo around here using FHA!

Here’s the thing, up until about a year or so ago FHA didn’t really exist around these parts. The mortgage meltdown and the pounding that Fannie and Freddie took brought about a new era of lending to folks who had less than 20% down and the burden of that fell onto FHA. FHA backed loans are possible for all of those folks, but if you’re a buyer and you have less than 10% down you’re certain to need an FHA loan. It’s certainly understandable that FHA would have strict criteria since the risk is greater with buyers who have 5% or less down. Often the process is daunting to say the least to qualify for one of these loans. The appraisals, for one thing, are much more rigid than conventional loans and often seem to be more like inspections. If there’s an outstanding problem the deal could easily be at risk. Consequently, many listing agents are fearful of buyers with FHA loans since the risk to their seller is so much greater. If a seller has a choice between a buyer with a conventional loan and one with an FHA loan they almost always take the conventional buyer.

Well, we now have a new and more painful twist. For condo/townhouse buyers, FHA prefers to loan on projects that are approved in advance by them. Since FHA is almost new to this area there are very, very few projects that have gone through their process and have been approved. In Foster City, Marina Point is the only approved project. In Redwood Shores, none of the projects have been approved. It’s like that in most of the Peninsula communities…and why not? FHA is new to the Peninsula…their approval was never important before.

FHA has, up until now, allowed a “spot” approval process that made an exception for condo and townhouse projects that were not on their official list and thus local buyers with less than 10% down could actually purchase a home here. As of February 15, however,  FHA has scrapped the “spot” approval program. If you want to buy a condo at the Admiralty, or a townhouse at Nantucket Cove for example, the whole project will need to go through the approval process before you can close. Depending on who you talk to that could take months…if they do it at all. I also heard today that the process will require that HOA’s change their master insurance policies to cover interior walls…a level of coverage that hasn’t been required before.

What does this all mean? I’m thinking it could mean that FHA is taking first time condo/townhouse buyers with less than 10% down out of the marketplace all together. It means that if you have a condo at the Admiralty and want to sell, the pool of prospective buyers just got alot smaller. If you’re a seller and an offer comes in with an FHA loan, why would you want to consider it at all? If this insurance issue is correct, why would any HOA want to be approved at all? It also means that if you’re a buyer…you better save enough for a 10% minimum down payment so that you can qualify under a conventional loan. For what it’s worth, here’s a website that allows you to check, by town or zip code, approved condo/townhouse projects. If it shows “error” that means there are none in that area.

https://entp.hud.gov/idapp/html/condlook.cfm

Keeping it Local

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I sure keep getting great ideas when blog readers send in questions! I got another great one the other day from Debbie who wanted to know the importance of using a local lender for a purchase. She had been told, erroneously, that it wasn’t OK to use a San Jose lender for her purchase because that lender was out of the area. Here’s my opinion…I think it very well could be a mistake to use an out-of-area lender for a purchase around here. I also think that San Jose is local!

This is a very tech friendly environment we live in around here and it’s not an uncommon notion for many folks who are employed by technology firms to want to use an online lender for their purchase. Unfortunately, I’ve had more than one escrow disaster when a buyer has insisted on using an online lender…who often is located outside of California. They’ve proven to me to be slow to respond and unfamiliar with local customs. I really think it’s important to have a representative in this area that can handle the inevitable bumps that occur along the path to closing. I remember one poor buyer who found a lender in up state New York online and paid them the loan points up front to get him a loan. Ten days prior to closing they couldn’t find his file when his agent called! He was forced to abandon his already paid fee so that he wouldn’t lose his deposit as he approached a closing that no one was sure was going to happen. He had to change lenders to BofA locally…who closed it a few days late.

I also had a recent request from a buyer to use an online title company to complete our transaction. I actually had never heard of such a thing…but we talked his agent into using a local firm for that. I can’t imagine wanting to send a $30,000 deposit to a Title company that’s not even in the Bay Area.

I think most agents have folks they trust who they know can get the job done. As buyers you sure have plenty of choices but keeping things local is, most likely, going to save you enormous headaches in the long run.

Fun With Appraisals

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A couple of weeks ago at my fun listing at 9 Violet in San Carlos one of the neighbors came into my open house and told me that, in the process of refinancing, his appraisal came in at $710,000. Interesting since he has the identical unit to the one I have for sale…and it’s listed for $879,000. Both of these units have expansive views of the Bay. I just closed one without a view on Violet for $761,000. In addition to that a larger view unit 2 blocks away in the same project just closed last week at $915,000. The neighbor wanted my advice about what he should do.

Then last week I get a comment here on the blog from Michelle that her waterfront, 3 bedroom townhouse just got appraised at $540,000 even though there are units in her complex listed for more than $650,000.

Appraisals are brutal right now. To make matters worse it’s no longer OK for the lender’s loan officer to actually talk to their own appraiser about the values of these properties. It’s a knee jerk reacti0n to the mortgage meltdown. Whatever the appraiser says, goes…even if they don’t have the foggiest notion of values in a given area.

I heard a story a week or so ago, an agent that I know had an escrow locally on a purchase of  $2,080,000. The appraisal came in at $2,050,000 and they buyer wanted to pay for a second appraisal hoping to bring it in at value. The bank randomly sent out an East Bay appraiser who was completely unfamiliar with our area…and his appraisal came in at $1,400,000! It seems like everybody I’m talking to right now has an appraisal horror story. I honestly don’t understand these refi appraisal stories though. In the case of Violet Lane there were comparables that truly did support a higher value. Why not use them to support the refi? Does the lender in question just not want to loan right now? Are these appraisers so very frightened of over committing on value that they intentionally aim low?

One thing I do know…it’s an interesting time. If I were trying to refinance right now and got an appraisal like the ones mentioned above I’d definitely have another one done. If you’re in this boat right now, be patient and be persistent.

Help For Jumbo’s

jumbo

I was going to use a photo of an Elephant, but I decided that I liked this Hong Kong tourist trap better. Of course, neither image is even slightly relevant to this post so it doesn’t make much difference anyway!

One of the most difficult aspects of the Real Estate business in this area has been the difficulty in obtaining  a jumbo mortgage loan. Most of all the talk about low interest rates on home loans has pretty much been focused upon conforming loans, or loans of $415,000 or less. These loans are backed by Fannie Mae, Freddie Mac or FHA and are typically not the type of loan needed by most buyers of single family homes in Foster City…or elsewhere in the Mid Peninsula. Not only has the criteria become more rigid but the interest rates on jumbo loans have really been significantly higher than on conforming products.

Now it would appear that some major banks are heading into the jumbo market again and are now originating loans at much more affordable rates…in fact under 6% in many cases. Since it’s entirely possible that all 39 of Foster City’s active single family listings could have buyers that would need a jumbo loan, this could be a really good thing for the local marketplace and the stability of home values here. We’ll see…

Here’s a link to a Washington Post article from Saturday about this topic:

Washington Post Jumbo Article